Poor FDI inflows reflect Zim’s hostile business environment

THE latest United Nations Conference on Trade and Development World Investment Report 2015 shows Zimbabwe’s foreign direct investment (FDI) inflows marginally grew from US$400 million in 2013 to US$545 million last year compared to billions which poured into neighbouring countries, a strong indicator that the country is hostile to investment and needs to do something urgently to improve the business environment.

Kudzai Kuwaza

FDI inflows to Africa remained flat at US$54 billion.

Global FDI inflows fell by 16% to US$1,2 trillion in 2014, mostly because of the fragility of the global economy, policy uncertainty and elevated geopolitical risks. New investments were also offset by some large divestments.

Inward FDI flows to developing economies reached their highest level at US$681 billion with a 2% rise. Developing economies thus extended their lead in global inflows. China became the world’s largest recipient of FDI. Among the top 10 FDI recipients in the world, five are developing economies.

However, Zimbabwe remains an economic backwater, with paltry FDI inflows. According to the report, Zimbabwe’s 2014 FDI inflows paled in comparison to neighbouring countries in the Sadc region such as Mozambique, which received US$4,9 billion, almost nine times more, South Africa (US$5,7 billion) and Zambia (US$2,4 billion).

Analysts say Zimbabwe’s low DFI figure is yet another reminder and evidence of a hostile business climate which requires government to speedily ensure structural and policy reforms, including clarifying the indigenisation policy which has led to capital flight and kept investors at bay while damaging the economy.

Although, the country’s FDI inflows for 2014 recorded a 36% increase from the previous year, it still falls far short of what Zimbabwe needs to bottom out of its worsening economic deterioration given the debilitating liquidity crunch, company closures and massive job losses, analysts say.

There are a number of obstacles hindering meaningful inflows of investment among them inadequate supplies of key utilities, including electricity and water, as well as the breakdown of infrastructure, mainly railways and roads.
Analysts note that the biggest obstacle to investment by far largely remains the indigenisation policy signed into law by President Robert Mugabe in 2008. The indigenisation law compels all foreign-owned companies to relinquish 51% shares to indigenous Zimbabweans such that they remain with a maximum 49% equity, a policy investors are resisting.

Concerns over indigenisation have been echoed by various business delegations from various countries, including the United States, United Kingdom and other EU states, as well as Zimbabwe’s close allies like China and Russia. African countries have expressed anxieties over the policy.

Only last month US ambassador to Zimbabwe Bruce Wharton, in an interview with a local daily, highlighted strong reservations among US investors over the policy.

“Indigenisation is a good example of the rules (putting investors off) because they seem to change from time to time, depending on who you are talking to. Over the years, the rules of indigenisation have shifted somewhat, American investors have specifically told me that they need that framework clarified,” Wharton said.
“Indigenisation makes sense philosophically as a way of protecting citizens economically. The US does it, Zambia and South Africa have these, but these need to be very clear and predictable and then businesspeople can decide whether to come in or not.”

The policy has also been mired in confusion with contradicting statements from various government officials and policymakers.

Despite promises by President Robert Mugabe and officials like Finance minister Patrick Chinamasa at various fora to overhaul the policy, only inconsequential changes have been made.

Chinamasa only managed to fuel anxiety during his presentation of the 2015 budget last year when he announced government was giving line ministers power to approve indigenisation plans for sectors under their purview, with the Indigenisation ministry only issuing compliance certificates. Investors feared the piecemeal review opened the door to rent-seeking venality by ministers.

Other factors that have resulted in Zimbabwe getting less than a tenth of what South Africa has received in FDI terms include the failure to respect property rights manifested through endless farm invasions, trampling on the rule of law, dilapidated state of key infrastructure such as roads and railways, erratic supplies and high cost of key utilities like water and electricity, rigid legal frameworks, bureaucratic inefficiencies and rampant corruption.

That government is considering circumventing the policy in favour of special economic zones speaks volumes of the failure of the policy.

Economist Godfrey Kanyenze says the increase from US$400 million to US$545 million in FDI is no cause for celebration given the country’s vast potential.

“We cannot celebrate US$545 million in a country with the potential and resources as Zimbabwe,” Kanyenze said. “Investors would like to come to Zimbabwe, but the country risk is too high and serious. You cannot expect investors to come when company closures are the only show in town because of economic problems, hostile environment and bad policies.”

He said there is an urgent need to rehabilitate infrastructure and address the shortages in electricity and water, among other things.

Zimbabwe ranks 171 out of 189 countries on the latest Ease of Doing Business index, an indicator as to why the country is not attracting meaningful investment.

“We are getting what we deserve, I am afraid,” economic analyst John Robertson said. “Our policies, especially on indigenisation, are designed in a way that frustrates investors and capital inflows.”

Robertson said the latest example that investors have lost confidence in Zimbabwe is the pulling out of Rio Tinto after a 60-year presence locally last week, calling it “a major vote of no confidence” in the country.

Analysts say while other countries’ investment policies continue to be geared predominantly towards investment pull, promotion and facilitation of the ease of doing business, Zimbabwe’s measures remain restrictive, unfriendly and even antagonistic.